China Customs Focuses on Voluntary Disclosures and Under-reporting of Royalties

There has never been a better, or more critical, time than now for enterprises to review their operations and activities that are subject to scrutiny and regulation by China Customs. With the recent changes to the Regulations on Customs Audit as well as the boost in China Customs' audit capabilities, enterprises can expect China Customs to heighten their efforts to complete audits of all importers, exporters and processing trade manufacturers.

On 7 July 2016, the State Council amended the Regulations on Customs Audit (State Council Order 670). The amended regulations will enter into force on 1 October 2016. The revised audit rules further clarify, among other things, the scope and period of a customs audit, the procedures and processes of an audit, the mechanisms for self-compliance and voluntary disclosure, and the involvement of third-party intermediaries in a customs audit.

The revised audit rules also formalise the sharing of enterprise information. This means that China Customs can collect information related to the import and export of certain commodities and industries from related industrial associations, government bodies and enterprises as required for a customs audit.

China Customs has also increased the number of Customs accredited third-party auditing firms which can be appointed to conduct post-clearance audits of enterprises. The assessments of these third-party auditing firms can form the basis of Customs audits.